Estimated reading time: 4 minutes
Key Takeaways
- UBS maintains a sell rating on Tesla with a £225 target, far below current trading levels.
- High P/E near 120 and shrinking margins raise valuation concerns.
- Inventory build-up suggests potential price cuts ahead.
- Second-quarter results next week could be a pivotal moment for investor sentiment.
- Competition from lower-cost Chinese EVs adds pressure to justify Tesla’s premium.
Table of Contents
UBS Analysts’ Bearish View
In a fresh UBS research note, analysts reiterated that Tesla shares are “priced for perfection,” arguing that even rosy scenarios on artificial intelligence and robotics are already baked in. They kept a £225 target, implying a sharp drop from today’s quote. “At current multiples, even flawless execution leaves little upside,” the bank wrote, underscoring a sell stance.
Key reasons behind the scepticism include:
- P/E near 120 versus industry averages below 20.
- Margin compression amid ongoing price cuts.
- Rising competition in China and Europe.
- Deliveries that have missed expectations in consecutive quarters.
Financial Markers Highlight the Concern
Tesla still enjoys class-leading gross margins, yet they slipped below 20% for the first time in four years. Inventory has ballooned to roughly 124,000 vehicles—about 28 days of supply—up from 15 days previously.
“If demand fails to catch up, deeper discounts may become inevitable,” UBS cautioned.
Earnings Forecast & Q2 Focus
For next week’s Tesla Q2 2024 earnings, UBS models 2025 EPS of £2.02—30% below consensus—and trims 2026 EPS to £2.81. Vehicle deliveries for 2025 are cut to 1.7 million, versus the street’s 2 million-plus. Investors will home in on three metrics:
- Total deliveries reported.
- Gross margin direction.
- Forward guidance tone.
Market Reaction & Split Sentiment
Shares slipped roughly 3% in pre-market trading after the report, extending a year-to-date decline of nearly 35%. According to Bloomberg consensus, 13 analysts rate Tesla a buy, 11 a hold and 12 a sell, with an average target of £340.31—suggesting some upside despite the bear calls.
Industry Backdrop Adds Pressure
Cheaper Chinese EV models, waning global demand growth and macro-economic uncertainty all chip away at Tesla’s premium. Analysts warn that aggressive price cuts can drive volume but jeopardise profitability—a delicate trade-off for 2024 and beyond.
Outlook
Next week’s numbers could either vindicate UBS’s caution or spark a relief rally. How Tesla balances competitive pricing, scales new tech and protects margins will decide whether the stock’s lofty multiple is sustainable. Until then, many investors may choose to “wait for the print” before making fresh commitments.
FAQs
Why does UBS think Tesla is overpriced?
UBS cites a lofty P/E ratio, narrowing margins and strong competition, arguing that optimistic assumptions on AI and robotics have already been priced in.
What is UBS’s target price for Tesla?
The bank keeps a £225 target—well below current levels—paired with a sell rating.
When will Tesla release Q2 results?
Tesla is expected to publish second-quarter earnings next week, with an investor call following the release.
Which data points should investors watch?
Delivery totals, gross margin trajectory and forward guidance will be the primary focus.
Could inventory levels trigger more price cuts?
Yes. Elevated inventory—now at roughly 28 days of supply—may compel Tesla to discount further if demand lags, pressuring profitability.
